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4 alternatives to credit cards

If you're having trouble qualifying for an unsecured credit card, rest assured that you have plenty of other options, some of which may have similar benefits to traditional credit cards. Read on to learn about different payment options out there and their potential perks and downsides.

Cash

While carrying a load of cash around can be a hassle, using cash has one huge benefit: You don't have to worry about spending more money than you have.

The downside to cash, though, is that it can be bulky and awkward - especially if you're carrying around a lot of smaller bills and coins. Furthermore, cash offers no inherent protections if lost or stolen. So if your wallet disappears, so does your money.

Who cash can be good for: Anyone who wants to avoid the pitfalls of credit completely and doesn't mind the risk of it getting stolen.

Debit cards

While debit cards are a convenient way to pay with money from your own bank account, they can offer fewer protections than credit cards. According to the Federal Trade Commission, under the Electronic Funds Transfer Act, you could lose all the money stolen from your ATM/debit card account -- and possibly money in accounts linked to your debit account -- if you don't report the theft within 60 days of receiving your statement.

Your liability for fraudulent purchases made on credit, on the other hand, is limited to $50 under the Fair Credit Billing Act.

Another con: If you use debit to reserve a rental car or hotel room, they'll likely put money from your account on hold, meaning you won't have access to it.

Depending on how much money you have in your checking account, this could pose a problem. For example, if a hotel put a $400 hold on your account, and you only had $200 in checking, you would overdraw.

Who debit cards can be good for: Someone who enjoys the convenience of credit, but wants to stay on budget and avoid going into debt.

Prepaid debit cards

Unlike regular debit cards that are linked to your bank account, prepaid debit cards typically require manual funding. You can load them with the money you need for bills and regular expenses, subject to certain limits.

A lot of prepaid debit cards offer many of the same perks as traditional debit cards, including online bill-pay and mobile banking.

Before getting a prepaid debit card, you'll want to know what sorts of fees come attached to it. Many prepaid debit cards charge a variety of fees, including monthly account maintenance fees, transaction fees, live customer service fees and ATM fees.

Meanwhile, the protections offered by prepaid debit cards vary, since the government doesn't strictly regulate them. While payroll and government-issued cards typically offer the same protections as bank debit cards, protections for network-branded prepaid debit cards are typically decided by the issuer.

If you opt for a prepaid debit card, you should always read your card's terms and conditions to know your liability ahead of time.

Who prepaid debit cards can be good for: A consumer who doesn't have a traditional banking relationship and may not qualify for an unsecured credit card.

Secured credit cards

Secured credit cards are credit cards that offer a line of credit in exchange for a security deposit. While these cards usually only offer a low credit limit ($300 to $500) equal to your initial deposit, getting one can help you build your credit since they're typically included on your credit report.

Secured cards come with caveats, though. Most charge annual fees for use, as well as monthly maintenance fees and application fees. Interest rates on secured cards are generally higher than unsecured credit card rates as well.

Who secured cards can be good for: Anyone who is trying to build his credit from scratch or repair his credit through responsible use.

Bottom line

We've all got bills to pay, but there are plenty of ways to go about it. So if you're on the hunt for the right form of payment but can't qualify for an unsecured credit card, you may want to consider one of these options instead.

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All Comments

Another new option is the Lenny iOS app, which is the first app to offer a credit line exclusively via a mobile app. Lenny is different in that it was designed specifically to help educate about and improve your credit score. Your Lenny account teaches you about credit utilization ratio, and even suggests complementary accounts to diversify your financial profile and optimize your score. Check it out in the iOS App Store under 'Lenny – Build Credit, Earn Rewards & Free Credit Score'.